Employers should consider all workforce options before pursuing compulsory redundancies. This includes offering voluntary redundancy.
As a way to reduce headcount, ‘self selection’ for redundancy can bring a number of benefits. Voluntary redundancies are generally more straightforward to deal with than compulsory redundancies, and entail less stress and animosity between the employer and affected employees. This can result in reduced risks relating to reputation and workforce morale.
What is voluntary redundancy?
Voluntary redundancy is an option where you offer your employee(s) a fair financial package, or incentive, to end their employment with you by agreement.
Where there is take up, you may be able to avoid making compulsory redundancies, although you should consider the possibility that may still have to pursue compulsory redundancies even after the offer voluntary exits.
The difference between compulsory and voluntary redundancy is that the former entails a legal selection process determining the roles and employees at risk of redundancy, whilst the latter relies on an employee stepping up voluntarily.
Why offer voluntary redundancy
There are many potential benefits of allowing employees to voluntarily resign. Lowering headcount on voluntary basis avoids the need to follow the protracted consultation and selection process, saving the organisation time and money. It can also be a better option to maintain workforce relations by making employee exits amicable since the employee gets to have their say on the terms of their exit. This can help to foster positive relations in future and promoting workforce morale by taking a more progressive approach and putting your employees at ease.
Voluntary redundancy also reduces the risk of legal claims, since the employee has taken the decision following negotiations and is resigning through choice.
At the outset of any redundancy process, you will need to check contracts of employment. If these include a term that volunteers will be sought in a redundancy situation before any compulsory redundancies, this must be followed.
Offering voluntary redundancy
If you are offering voluntary redundancy, you will need to follow the correct process.
Start by sending out a communication to eligible employees explaining the situation and asking for volunteers. Being honest and upfront about current difficulties and the reasons for the redundancy can instil trust and avoid rumours.
The aim of voluntary redundancy is to incentivise employees financially into agreeing to leave the business. This means offering a fair package which would appeal to employees.
For those that express an interest, a voluntary redundancy letter should be provided explaining the process and what the voluntary redundancy package on offer would be. You will need to be clear on the amount that is being offered to them, what will happen to any benefits, bonuses and commissions they are entitled to, details of their notice period and whether this will be worked or PILON applies, and what will happen to accrued annual leave.
In most cases, voluntary redundancy will involve negotiation with the employee to agree the final exit package, or settlement, to leave the organisation.
Those taking voluntary redundancy have the same rights as under the compulsory redundancies, this includes consultations and allowing time off to find new work.
Record keeping will be important throughout the process, of discussions and communications. This is helpful in the event of any potential future complaint about the process.
Voluntary redundancy package
When building a package, you should consider factors such as:
- Statutory entitlements eg statutory redundancy pay if they have at least two years’ continuous service
- The length of the employee’s notice period
- The time it could take them to find a new job
- Any contractual benefits they are entitled to
- Any discretionary payments you are willing to make
- Statutory entitlements and contractual terms
For each full year the individual has worked for the organisation, they will be entitled to statutory redundancy pay as follows:
- up to age 22 – half a week’s pay
- age 22 to 40 – 1 week’s pay
- age 41 and older – 1.5 weeks’ pay
The maximum weekly amount is £544, and there is a cap of 20 years continuous service.
Use this information to calculate the maximum settlement amount you each employee is entitled to, and if you are able to outlay more as a financial incentive.
In practical terms, voluntary redundancy usually involves offering a more generous settlement than the employee would otherwise be entitled to under compulsory redundancy. This is to encourage employees to take up the offer and to allow the business to avoid the compulsory redundancy process. This could mean offering six months pay, or even a full year’s pay.
The initial settlement offer would usually be below the maximum amount, to allow for negotiation. Remember, the employee has the right to decline any offer for voluntary redundancy and withdraw from the voluntary redundancy process.
Do employers have to accept offers for voluntary redundancy?
Employers are not obligated to accept offers from employees to take up voluntary redundancy. It is for the employer to agree to the resignation. This should be made clear to employees when offering voluntary redundancy.
If several employees have volunteered, the employer will need to take steps to select from the ‘pool’ of volunteers for redundancy. Any selection from the pool of volunteers will have to follow a fair process, to avoid legal complaints.
This should involve assessing applications based on criteria such as their role, skills, attendance and disciplinary record. This also helps to avoid situations where key employees volunteer who the employer would wish to retain.
Again, record keeping will be critical here as evidence of decision making and reasoning. If the organisation refuses applications for voluntary redundancy but then goes on to make compulsory redundancies, they should be prepared to defend their decision. Employees who are compulsorily made redundant may be able to claim that their dismissal was unfair since their role could have been saved had the voluntary redundancies been accepted.
Early retirement
If any of your employees are close to retirement, you may suggest they take voluntary early retirement instead of voluntary redundancy. If this is proposed, there should be a fair selection process. You should set out the proposed retirement package, including redundancy payments and notice periods.
Need assistance?
DavidsonMorris’ employment lawyers can help with all aspects of workforce management and planning, including redundancies, dismissals, settlements and contentious exits. Working closely with our specialists in HR, we deliver comprehensive advice on the options open to you as an employer and provide practical support through the redundancy process, with particular experience in complex circumstances such as managing redundancy during maternity leave. For help and advice with a specific issue, speak to our experts.
Voluntary redundancy FAQs
Do you get more money if you take voluntary redundancy?
The amount offered for voluntary redundancy will depend on a number of factors, including length of service, and will usually be negotiated. Employers and employees should ensure they are clear on the level of redundancy pay and any other entitlements that should form part of the exit package.
Can an employer refuse an employee voluntary redundancy?
Yes, the employer is not obligated to accept the offer to take voluntary redundancy. Likewise, the employee may decline to accept the settlement offered for voluntary redundancy.
How long is the notice period for voluntary redundancy?
Employees should be given the relevant amount of statutory minimum notice period, or the amount they are entitled to under their contract of employment if longer. In some cases, the employer and employee may agree to payment in lieu of notice.
Last updated: 28 March 2021
